-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P2IzqCZQmZsjnLRAm50NuIsq+CLFzA/3RYS6SSiANJe32o4O1Ja9DzJORMlxRUQk 3A7fXhyTxgL1Z3ohdnTvNg== 0000714395-97-000013.txt : 19971117 0000714395-97-000013.hdr.sgml : 19971117 ACCESSION NUMBER: 0000714395-97-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GERMAN AMERICAN BANCORP CENTRAL INDEX KEY: 0000714395 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 351547518 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-11244 FILM NUMBER: 97720384 BUSINESS ADDRESS: STREET 1: 711 MAIN ST STREET 2: P O BOX 810 CITY: JASPER STATE: IN ZIP: 47546 BUSINESS PHONE: 8124821314 MAIL ADDRESS: STREET 1: 711 MAIN STREET CITY: JASPER STATE: IN ZIP: 47546 FORMER COMPANY: FORMER CONFORMED NAME: GAB BANCORP DATE OF NAME CHANGE: 19950510 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) I X I Quarterly Report pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 for the Quarterly Period Ended September 30, 1997 Or I I Transition Report pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 for the Transition Period from to ---------- ----------- Commission File Number 0-11244 German American Bancorp (Exact name of registrant as specified in its charter) INDIANA 35-1547518 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 711 Main Street, Jasper, Indiana 47546 (Address of Principal Executive Offices and Zip Code) Registrant's telephone number, including area code: (812) 482-1314 Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ---------- ---------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at November 10, 1997 Common Stock, $10.00 par value 5,092,082 GERMAN AMERICAN BANCORP INDEX PART I. FINANCIAL INFORMATION Item 1. Consolidated Balance Sheets -- September 30, 1997 and December 31, 1996 Consolidated Statements of Income -- Three Months Ended September 30, 1997 and 1996 Consolidated Statements of Income -- Nine Months Ended September 30, 1997 and 1996 Consolidated Statements of Cash Flows -- Nine Months Ended September 30, 1997 and 1996 Notes to Consolidated Financial Statements -- September 30, 1997 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K a) Exhibits 27 Financial Data Schedule b) Reports on Form 8-K SIGNATURES PART 1.FINANCIAL INFORMATION ITEM 1.FINANCIAL STATEMENTS GERMAN AMERICAN BANCORP CONSOLIDATED BALANCE SHEET (dollar references in thousands except share data) (unaudited) September 30, December 31, 1997 1996 ASSETS Cash and Due from Banks $15,773 $17,134 Federal Funds Sold 14,500 20,600 Cash and Cash Equivalents 30,273 37,734 Interest-bearing Balances with Banks 397 597 Other Short-term Investments --- 979 Securities Available-for-Sale, at market 93,539 98,557 Securities Held-to-Maturity, at cost 21,277 22,832 Total Loans 327,762 313,734 Less: Unearned Income (299) (452) Allowance for Loan Losses (6,265) (6,528) Loans, Net 321,198 306,754 Premises, Furniture and Equipment, Net 12,306 11,585 Other Real Estate 148 203 Intangible Assets 1,622 1,774 Accrued Interest Receivable and Other Assets 8,168 8,428 TOTAL ASSETS $488,928 $489,443 LIABILITIES Noninterest-bearing Deposits $47,914 $52,674 Interest-bearing Deposits 378,453 370,232 Total Deposits 426,367 422,906 Short-term Borrowings 5,533 12,527 FHLB Borrowings --- 1,000 Accrued Interest Payable and Other Liabilities 4,740 4,217 TOTAL LIABILITIES 436,640 440,650 SHAREHOLDERS' EQUITY Common Stock, $10.00 par value; 20,000,000 shares authorized, and 2,546,041 and 2,539,059 issued and outstanding in 1997 and 1996, respectively 25,460 25,390 Preferred Stock, $10 par value; 500,000 shares authorized, no shares issued --- --- Additional Paid-in Capital 3,965 3,649 Retained Earnings 22,144 19,259 Unrealized Appreciation on Securities Available-for-Sale, net of tax 719 495 TOTAL SHAREHOLDERS' EQUITY 52,288 48,793 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $488,928 $489,443 See accompanying notes to consolidated financial statements. GERMAN AMERICAN BANCORP CONSOLIDATED STATEMENTS OF INCOME (dollar references in thousands except per share data) (unaudited) Three Months Ended September 30, 1997 1996 INTEREST INCOME Interest and Fees on Loans $7,531 $7,018 Interest on Federal Funds Sold 147 114 Interest on Short-term Investments 9 21 Interest and Dividends on Securities 1,824 1,719 TOTAL INTEREST INCOME 9,511 8,872 INTEREST EXPENSE Interest on Deposits 4,371 4,115 Interest on Short-term Borrowings 56 121 TOTAL INTEREST EXPENSE 4,427 4,236 NET INTEREST INCOME 5,084 4,636 Provision for Loan Losses 67 80 NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 5,017 4,556 NONINTEREST INCOME Income from Fiduciary Activities 80 53 Service Charges on Deposit Accounts 300 261 Investment Services Income 102 109 Other Charges, Commissions, and Fees 208 110 Gains on Sales of Loans and Other Real Estate 6 0 Gains on Sales of Securities 0 0 TOTAL NONINTEREST INCOME 696 533 NONINTEREST EXPENSE Salaries and Employee Benefits 1,859 1,802 Occupancy Expense 277 271 Furniture and Equipment Expense 229 241 Computer Processing Fees 127 108 Professional Fees 154 174 Other Operating Expenses 729 845 TOTAL NONINTEREST EXPENSE 3,375 3,441 Income before Income Taxes 2,338 1,648 Income Tax Expense 775 519 Net Income $1,563 $1,129 Earnings Per Share $0.31 $0.22 Dividends Paid Per Share $0.11 $0.10 See accompanying notes to consolidated financial statements. GERMAN AMERICAN BANCORP CONSOLIDATED STATEMENTS OF INCOME (dollar references in thousands except per share data) (unaudited) Nine Months Ended September 30, 1997 1996 INTEREST INCOME Interest and Fees on Loans $21,890 $20,677 Interest on Federal Funds Sold 309 427 Interest on Short-term Investments 50 146 Interest and Dividends on Securities 5,689 5,013 TOTAL INTEREST INCOME 27,938 26,263 INTEREST EXPENSE Interest on Deposits 12,765 12,018 Interest on Short-term Borrowings 237 367 TOTAL INTEREST EXPENSE 13,002 12,385 NET INTEREST INCOME 14,936 13,878 Provision for Loan Losses (476) 183 NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 15,412 13,695 NONINTEREST INCOME Income from Fiduciary Activities 229 170 Service Charges on Deposit Accounts 865 701 Investment Services Income 325 326 Other Charges, Commissions, and Fees 465 354 Gains on Sales of Loans and Other Real Estate 8 2 Gains on Sales of Securities 0 0 TOTAL NONINTEREST INCOME 1,892 1,553 NONINTEREST EXPENSE Salaries and Employee Benefits 5,554 5,343 Occupancy Expense 813 803 Furniture and Equipment Expense 682 687 Computer Processing Fees 374 316 Professional Fees 713 403 Other Operating Expenses 2,086 2,187 TOTAL NONINTEREST EXPENSE 10,222 9,739 Income before Income Taxes 7,082 5,509 Income Tax Expense 2,395 1,770 Net Income $4,687 $3,739 Earnings Per Share $0.92 $0.74 Dividends Paid Per Share $0.33 $0.28 See accompanying notes to consolidated financial statements. GERMAN AMERICAN BANCORP CONSOLIDATED STATEMENTS OF CASH FLOWS (dollar references in thousands) (unaudited) Nine Months Ended September 30, 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES Net Income $4,687 $3,739 Adjustments to Reconcile Net Income to Net Cash from Operating Activities: Amortization and Accretion of Investments 28 (27) Depreciation and Amortization 849 805 Provision for Loan Losses (476) 183 Gains on Sales of Securities --- --- Gains on Sales of Loans and Other Real Estate (8) (2) Change in Assets and Liabilities: Unearned Income (153) (23) Interest Receivable (866) (493) Other Assets 1,057 250 Interest Payable 541 207 Deferred Loan Fees (19) (33) Deferred Taxes 69 (73) Other Liabilities (17) 348 Total Adjustments 1,005 1,142 Net Cash from Operating Activities 5,692 4,881 CASH FLOWS FROM INVESTING ACTIVITIES Change in Interest-bearing Balances with Banks 200 198 Proceeds from Maturities of Other Short-term Investments 996 7,000 Purchase of Other Short-term Investments --- (1,466) Proceeds from Maturities of Securities Available-for-Sale 32,353 28,114 Proceeds from Sales of Securities Available-for-Sale --- --- Purchase of Securities Available-for-Sale (27,162) (30,016) Proceeds from Maturities of Securities Held-to-Maturity 3,133 4,290 Proceeds from Sales of Securities Held-to-Maturity --- --- Purchase of Securities Held-to-Maturity (1,572) (3,679) Purchase of Loans (1,152) (977) Loans Made to Customers net of Payments Received (12,663) (25,855) Proceeds from Sales of Loans 19 --- Proceeds from Maturities of Long-term Borrowings Property and Equipment Expenditures (1,418) (988) Proceeds from Sales of Other Real Estate 63 26 Net Cash from Investing Activities (7,203) (23,353) CASH FLOWS FROM FINANCING ACTIVITIES Change in Deposits 3,461 12,673 Proceeds from Maturities of Short-term Borrowings (6,995) 684 Change in Long-term Borrowings (1,000) (1,000) Dividends Paid (1,523) (1,287) Exercise of Stock Options 3 8 Purchase of Fractional Shares (5) --- Issuance of Shares under Dividend Reinvestment Plan 109 65 Net Cash from Financing Activities (5,950) 11,143 Net Change in Cash and Cash Equivalents (7,461) (7,329) Cash and Cash Equivalents at Beginning of Year 37,734 32,601 Cash and Cash Equivalents at End of Period $30,273 $25,272 Cash Paid During the Year for: Interest $12,461 $12,178 Income Taxes 1,857 1,856 See accompanying notes to consolidated financial statements. GERMAN AMERICAN BANCORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1997 (unaudited) Note 1 -- Basis of Presentation Certain information and footnote disclosures normally included in financial statements prepared in accordance with Generally Accepted Accounting Principles have been condensed or omitted. All adjustments made by management to these unaudited statements were of a normal recurring nature. It is suggested that these consolidated financial statements and notes be read in conjunction with the financial statements and notes thereto in the German American Bancorp's December 31, 1996 Annual Report to Shareholders. German American Bancorp (referred to herein as the ``Company,'' the `Corporation,'' or the ``Registrant'') is a multi-bank holding company organized in Indiana in 1982. The Company's principal subsidiaries are The German American Bank, Jasper, Indiana (`German American Bank''), First State Bank, Southwest Indiana, Tell City, Indiana (`First State Bank''), and German American Holdings Corporation (`GAHC''), an Indiana corporation that owns all of the outstanding capital stock of both Community Trust Bank, Otwell, Indiana (`Community Bank'') and The Peoples National Bank and Trust Company of Washington, Washington, Indiana (`Peoples''). The Company, through its four bank subsidiaries operates twenty banking offices in six contiguous counties in southwestern Indiana. Peoples, organized under the National Bank Act in 1888, was acquired by the Company on March 4, 1997 pursuant to a merger of the parent corporation of Peoples into GAHC. Simultaneously with and as an integral part of this merger, The Union Bank of Loogootee, Indiana, a subsidiary of the Company, was merged with and into Peoples. At December 31, 1996 Peoples had assets of $91,937,000 and equity of $9,452,000. The Company's financial statements for all periods prior to the merger date have been retroactively restated to include the accounts of Peoples because the merger was recorded utilizing the pooling-of-interests method of accounting. Note 2 -- Per Share Data The weighted average number of shares used in calculating earnings and dividends per share amounts were 5,089,835 and 5,082,199 for the third quarters of 1997 and 1996, respectively. The weighted average number of shares for the first three quarters of 1997 and 1996 was 5,088,212 and 5,080,474, respectively. The weighted average number of shares have been retroactively restated for the November 1, 1997 two-for-one stock split, stock dividends, and poolings of interests. Dividends paid per share amounts represent historical dividends declared without retroactive restatement for pooling. Note 3 -- Securities The amortized cost and estimated market values of Securities as of September 30, 1997 are as follows: Estimated Amortized Market Securities Available-for-Sale: Cost Value (dollar references in thousands) U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies $51,233 $51,291 Obligations of State and Political Subdivisions 19,924 21,013 Corporate Securities 5,801 5,809 Mortgage-backed Securities 15,437 15,426 ------ ------ Total $92,395 $93,539 ======= ======= Estimated Amortized Market Securities Held-to-Maturity: Cost Value U.S. Treasury Securities and Obligations of U.S. Government Corporation and Agencies $1,504 $1,504 Obligations of State and Political Subdivisions 17,141 17,995 Corporate Securities 31 16 Mortgage and Asset-backed Securities 825 832 Other Securities 1,776 1,776 ----- ----- Total $21,277 $22,123 ======= ======= The amortized cost and estimated market values of Securities as of December 31, 1996 are as follows: Estimated Amortized Market Securities Available-for-Sale: Cost Value (dollar references in thousands) U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies $47,181 $47,041 Obligations of State and Political Subdivisions 19,560 20,186 Corporate Securities 7,221 7,245 Mortgage-backed Securities 23,783 24,078 Other Securities 1 7 - - Total $97,746 $98,557 ======= ======= Estimated Amortized Market Securities Held-to-Maturity: Cost Value U.S. Treasury Securities and Obligations of U.S. Government Corporation and Agencies $2,519 $2,498 Obligations of State and Political Subdivisions 18,253 18,881 Corporate Securities 47 47 Mortgage and Asset-backed Securities 999 989 Other Securities 1,014 1,014 ----- ----- Total $22,832 $23,429 ======= ======= Note 4 -- Loans Loans, as presented on the balance sheet, are comprised of the following classifications: September 30,December 31, 1997 1996 (dollar references in thousands) Real Estate Loans Secured by 1-4 Family Residential Properties $102,319 $93,713 Agricultural Loans 54,472 57,073 Commercial and Industrial Loans 110,367 111,469 Loans to Individuals for Household, Family and Other Personal Expenditures 59,404 50,200 Lease Financing 1,200 1,279 ----- ----- Total Loans $327,762 $313,734 ======== ======== Note 5 -- Allowance for Loan Losses A summary of the activity in the Allowance for Loan Losses is as follows: 1997 1996 (dollar references in thousands) Balance at January 1 $6,528 $6,893 Provision for Loan Losses (476) 183 Recoveries of Prior Loan Losses 674 205 Loan Losses Charged to the Allowance (461) (283) ----- ----- Balance at September 30 $6,265 $6,998 ====== ====== Note 6 -- Business Combinations On March 4, 1997, the Company acquired all of the outstanding shares of Peoples Bancorp of Washington, Indiana (and its wholly owned subsidiary, The Peoples National Bank and Trust Company of Washington) in exchange for 615,285 shares of German American Bancorp common stock. Fractional interests were paid in cash of $5. The transaction was accounted for as a pooling of interests. The following is a reconciliation of the separate and combined net interest income and net income of German American Bancorp and Peoples Bancorp of Washington for the periods prior to the acquisition: GERMAN AMERICAN PEOPLES BANCORP BANCORP (as previously reported) OF WASHINGTON COMBINED (dollar references in thousands) For the period January 1, 1997 through February 28, 1997 Net interest income $2,558 $696 $3,254 Net income 698 218 916 For the three months ended September 30, 1996 Net interest income 3,618 1,018 4,636 Net income 857 272 1,129 For the nine months ended September 30, 1996 Net interest income 10,943 2,935 13,878 Net income 3,005 734 3,739 Note 7 -- Proposed Acquisitions The Company signed two separate documents in October 1997 providing for the mergers of both CSB Bancorp (`CSB - Petersburg'') of Petersburg, Indiana and FSB Financial Corporation (`FSB - Francisco'') of Francisco, Indiana. CSB Petersburg owns all the outstanding shares of Citizens State Bank of Petersburg, Indiana which operates two banking offices in Pike County, Indiana. FSB Francisco owns all of the outstanding shares of The Francisco State Bank which operates two banking offices in Gibson County, Indiana. Under the terms of the CSB - Petersburg agreement, the Company will issue to the shareholders of CSB - Petersburg no less than 928,572 shares of Company Common Stock (subject to antidilution adjustments in the event of stock dividends, splits and the like, other than the Company's 1997 100% and 5% stock dividends), depending upon the Company's average common stock price during a period prior to the date of the merger closing. Based on the reported bid / asked quotations for the Company's Common Stock during the period preceding September 30, 1997, the Company would have issued the minimum number of shares had the merger closed on September 30, 1997. The October 29, 1997 letter of intent for the merger of FSB - Francisco provides for the issuance of approximately $2,000,000 of Company Common Stock to FSB shareholders. Each of the proposed mergers is subject to approval of a definitive merger agreement by the Boards of Directors of all the parties, by shareholders, by bank regulatory agencies, and other conditions. The parties contemplate that both transactions will be effective in early 1998. It is expected that both transactions will be accounted for as pooling of interests. CSB - Petersburg had Total Assets of $76,961,000 and Total Shareholder Equity of $9,339,000 at September 30, 1997. Net Income was $632,000 for the nine months ended September 30, 1997. FSB - Francisco had Total Assets of $15,705,000, Shareholder Equity of $1,474,000 and a net loss of $23,000 for the same periods. ITEM 2. GERMAN AMERICAN BANCORP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS German American Bancorp (``the Company'') is a multi-bank holding company based in Jasper, Indiana. Its four affiliate banks conduct business in twenty offices in Dubois, Daviess, Martin, Pike, Perry and Spencer Counties in Southwest Indiana. The banks provide a wide range of financial services, including accepting deposits; making commercial, mortgage and consumer loans; issuing credit life, accident and health insurance; providing trust services for personal and corporate customers; providing safe deposit facilities; and providing investment advisory and brokerage services. This section presents an analysis of the consolidated financial condition of the Company as of September 30, 1997 and December 31, 1996 and the consolidated results of operations for the periods ended September 30, 1997 and 1996. This review should be read in conjunction with the consolidated financial statements and other financial data presented elsewhere herein and with the financial statements and other financial data and the Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's December 31, 1996 Annual Report to Shareholders. Because of the Peoples National Bank acquisition on March 4, 1997 under the pooling-of-interests method of accounting, all financial statements have been retroactively restated for all periods. Also see Footnote 6 `Business Combinations.'' RESULTS OF OPERATIONS Net Income: The Company's earnings for the third quarter of 1997 were $1,563,000 or $.31 per share, an increase of $434,000 (or 38.4%) from the Company's third quarter earnings for 1996 of $1,129,000 or $.22 per share. Net income for the first nine months of 1997 was $4,687,000 or $.92 per share, which was $948,000 or 25.4% greater than the $3,739,000 or $.74 per share recorded for the same period of 1996. The comparison of 1997 earnings for both the nine and three month periods relative to those of the same periods of 1996 was materially impacted by an increase in net interest income and Deposit Service Charges and Fees. Earnings for 1997 were also largely impacted by a negative provision for loan losses, which was due to the collection of significant dollar amounts of previously charged-off loans. Return on average assets (ROA) was 1.30% and return on average equity was 12.58% for the first nine months of 1997 versus 1.07% and 10.64%, respectively for the same periods of 1996. Net Interest Income: The following table summarizes German American Bancorp's net interest income (on a tax-equivalent basis) for each of the periods presented herein. An effective tax rate of 34 percent is used on each period presented. Three Months Change from Ended September 30, Prior Period 1997 1996 Amount Percent (dollar references in thousands) Interest Income $9,806 $9,148 $658 7.2% Interest Expense 4,427 4,236 191 4.5% ----- ----- --- Net Interest Income $5,379 $4,912 $467 9.5% ====== ====== ==== Nine Months Change from Ended September 30, Prior Period 1997 1996 Amount Percent (dollar references in thousands) Interest Income $28,824 $27,049 $1,775 6.6% Interest Expense 13,002 12,385 617 5.0% ------ ------ --- Net Interest Income $15,822 $14,664 $1,158 7.9% ======= ======= ====== Net interest income is the difference between interest income (which includes yield-related fees) and interest expense. The increase in net interest income for the first nine months and the third quarter of 1997 compared to the same periods of 1996 was primarily due to an increase of loans in the mix of average earning assets. Loans generally provide a higher yield than that earned on investment securities and Federal Funds Sold. Net interest income on a tax-equivalent basis expressed as a percentage of average earning assets is referred to as the net interest margin, which represents the average net effective yield on earning assets. For the first three quarters of 1997, the net interest margin was 4.69 percent compared to 4.51 percent for the comparable period of 1996; for the third quarter of 1997, net interest margin was 4.69% compared to 4.43% for 1996. Provision For Loan Losses: The Company provides for loan losses through regular provisions to the allowance for loan losses. These provisions are made at a level which is considered necessary by management to absorb estimated losses in the loan portfolio. A detailed evaluation of the adequacy of this loan loss reserve is completed quarterly by management. The consolidated provision for loan losses was $(476,000) and $183,000 for the first nine months of 1997 and 1996, respectively and $67,000 and $80,000 for the third quarter of 1997 and 1996, respectively. The negative provision for 1997 was due to collections during the second quarter of previous years' charged-off loans, combined with management's determination during the second quarter that certain specific reserve allocations were no longer necessary due to the performance of the related loans. Based on Management's evaluation of the adequacy of the reserve, a negative provision was recorded to eliminate excess reserves created by loan recoveries and reduced specific reserve allocations. The amount of future periods' provision for loan loss will be subject to adjustment based on the findings of future evaluations of the adequacy of the loan loss reserve. Net recoveries were $213,000 or less than one percent of average loans for the first nine months of 1997. For the same period of 1996, net charge-offs were $78,000. Underperforming loans, as a percentage of total loans were 0.69% and 0.79% on September 30, 1997 and December 31, 1996, respectively. See discussion headed `Financial Condition'' for more information regarding underperforming assets. Noninterest Income: Noninterest income, exclusive of gains realized on the sales of loans, for the first nine months of 1997 was $1,884,000. This was $333,000 or 21.5 percent greater than the $1,551,000 recorded for the same nine months of 1996. For the third quarter of 1997, noninterest income was $157,000 or 29.5 percent greater than the identical period of 1996. Service charges on deposit accounts for the first three quarters of 1997 rose $164,000 or 23.4 percent over 1996. The Company made revisions to its pricing structure during the latter part of 1996 based on a market review. Noninterest Expense: Total noninterest expense for the first nine months of 1997 was $10,222,000 which translates to a $483,000 or five percent increase over the $9,739,000 posted for the same period in 1996. Total noninterest expense for the third quarter of 1997 was $3,375,000 which represents a $66,000 or 1.9 percent increase over the $3,441,000 posted for the same period in 1996. Salaries and Employee Benefits expense constituted 54% of total noninterest expense. For the first nine months of 1997 this amounted to $5,554,000. This was $211,000 or 3.9 percent more than the $5,343,000 recorded for the same period of the prior year. Salaries and employee benefits were $1,859,000 during the third quarter of 1997, an increase of $57,000 or 3.2% over the 1996 level of $1,802,000. The Company's active full-time equivalent (FTE) staff was 215 at September 30, 1997. Occupancy expense combined with Furniture and Equipment expense for the first nine months of 1997 equaled $1,495,000. This was only $5,000 greater than the $1,490,000 posted for the same period of the prior year. These expenses are expected, however, to moderately increase throughout the remainder of 1997 largely as a consequence of a planned upgrading of computer systems. The Company has recently embarked upon a strategy to implement state-of-the-art computer processing to provide the opportunities to, over the long-term, better control the level of employee related expenses and improve the quality of customer service provided throughout the affiliate bank system. The upgrade of computer equipment at Peoples concurrent with the merger represents the Company's first step in this process. Systems at all affiliate banks will be upgraded on a systematic basis throughout 1997 and 1998. Professional fees for the first nine months of 1997 were $713,000. This was $310,000 greater than the $403,000 recorded for the same period of 1996. Professional fees for the third quarter of 1997 were $154,000, a $20,000 decline from the $174,000 recorded for 1996. This year-to-date increase stems from the costs associated with the March 4,1997 merger of Peoples and a $200,000 special contingency reserve made in connection with an unasserted potential claim. FINANCIAL CONDITION Total assets at September 30, 1997 stood at $488,928,000. This was a decline of $515,000 from the December 31, 1996 total asset position. The largest decline in assets was concentrated in the holdings of Federal Funds Sold while total loans increased $14,028,000. Deposits at September 30, 1997 stood at $426,367,000 which was a $3,461,000 or less than one percent rise from the total deposits held nine months earlier. Short-term and Long-term Borrowings at September 30, 1997 were $5,533,000. This represents a $7,994,000 decline from the December 31, 1996 position as the Company utilized Federal Funds Sold to reduce its level of borrowings. All of the Company's Banks are members of the Federal Home Loan Bank System (``HLB''). The banks' membership in the FHLB provides a ready alternative for both long and short-term borrowing needs. Underperforming Assets: The following analyzes German American Bancorp's underperforming assets at September 30, 1997 and December 31, 1996. September 30, 1997 December 31, 1996 (dollar references in thousands) Nonaccrual Loans $595 $1,370 Loans which are contractually past due 90 days or more 1,679 1,102 Renegotiated Loans --- --- --- --- Total Underperforming Loans 2,274 2,472 ----- ----- Other Real Estate 148 203 --- --- Total Underperforming Assets $2,422 $2,675 ====== ====== Allowance for Loan Loss to Underperforming Loans 275.5% 264.08% Underperforming Loans to Total Loans 0.69% 0.79% Capital Resources: Federal banking regulations provide guidelines for determining the capital adequacy of bank holding companies and banks. These guidelines provide for a more narrow definition of core capital and assign a measure of risk to the various categories of assets. Minimum levels of capital are required to be maintained in proportion to total risk-weighted assets and off-balance sheet exposures such as loan commitments and standby letters of credit. Tier 1, or core capital, consists of shareholders' equity less goodwill, core deposit intangibles, and certain tax receivables defined by bank regulations. Tier 2 capital is defined as the amount of the allowance for loan losses which does not exceed 1.25% of gross risk adjusted assets. Total capital is the sum of Tier 1 and Tier 2 capital. The minimum requirements under these standards are generally at least a 4.0% leverage ratio, which is Tier 1 capital divided by defined `total assets'', 4.0% Tier 1 capital to risk-adjusted assets and 8.0% total capital to risk- adjusted assets ratios. Under these guidelines, the Company, on a consolidated basis, and each of its affiliate banks individually, have capital ratios that substantially exceed the regulatory minimums. The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) requires federal regulatory agencies to define capital tiers. These are: well- capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. Under these regulations, a `well-capitalized'' entity must achieve a Tier One Risk-based capital ratio of at least 6.0%, a total capital ratio of at least 10.0% and a leverage ratio of at least 5.0% and not be under a capital directive order. At September 30, 1997, management is not under such a capital directive nor is it aware of any current recommendations by banking regulatory authorities which, if they were to be implemented, would have, or are reasonably likely to have, a material effect on the Company's liquidity, capital resources or operations. The table below presents the Company's consolidated capital ratios under regulatory guidelines. RISK BASED CAPITAL STRUCTURE ($ in thousands) September 30, December 31, 1997 1996 Tier 1 Capital: Shareholders' Equity as presented on Balance Sheet $52,288 $48,793 Add / (Subtract): Unrealized Depreciation / (Appreciation) on Securities Available-for-Sale (719) (495) Less: Intangible Assets and Ineligible Deferred Tax Assets (1,736) (1,924) ------- ------- Total Tier 1 Capital 49,833 46,374 Tier 2 Capital: Qualifying Allowance for Loan Loss 4,196 4,028 ----- ----- Total Capital $54,029 $50,402 ======= ======= Risk-adjusted Assets $333,578 $319,718 To be Well Capitalized Under Prompt Minimum for Corrective Capital Action Adequacy Provisions September 30, December 31, Purposes (FDICIA) 1997 1996 Leverage Ratio 4.00% 5.00% 10.35% 9.70% Tier 1 Capital to Risk-adjusted Assets 4.00% 6.00% 14.94% 14.50% Total Capital to Risk-adjusted Assets 8.00% 10.00% 16.20% 15.76% LIQUIDITY The Consolidated Statement of Cash Flows details the elements of change in the Company's cash and cash equivalents. During the first nine months of 1997, the net cash from operating activities, including net income of $4,687,000 provided $5,692,000 of available cash. The maturities of securities and short-term investments brought in $7,948,000 in cash above the dollar amount of purchases. Major cash outflows experienced during this nine month period of 1997 included dividends of $1,523,000, property and equipment purchases, primarily related to computer upgrading, of $1,418,000 and the net funding outlay of loans in the amount of $13,796,000. Decreases occurring in deposits and short-term as well as long-term borrowings reduced cash by an additional $4,534,000. Total cash outflows for the period exceeded inflows by $7,461,000 leaving a cash and cash equivalent balance of $30,273,000 at September 30, 1997. PART II. -- OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. Description 2 Incorporated by reference to Form 8K. 27 Financial Data Schedule for the period ended September 30, 1997. (b) Reports on Form 8-K No reports on Form 8-K were filed during the three months ended September 30, 1997. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GERMAN AMERICAN BANCORP Date November 14, 1997 By/s/George W. Astrike ----------------- ------------------------- George W. Astrike Chairman Date November 14, 1997 By/s/John M. Gutgsell ----------------- ------------------------- John M. Gutgsell Controller and Principal Accounting Officer EX-27 2
9 9-MOS SEP-30-1997 SEP-30-1997 15,773 397 14,500 0 93,539 21,277 22,123 327,463 6,265 488,928 426,367 5,533 4,740 0 25,460 0 0 26,828 488,928 21,890 5,689 359 13,002 12,765 237 14,936 476 0 10,222 7,082 7,082 0 0 4,687 .92 .92 4.43 595 1,679 0 2,274 6,528 461 674 6,265 6,265 0 2,428
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